VIJAY MADANLAL CHOUDHARY & ORS. versus UNION OF INDIA & ORS. (27/07/2022) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

Deciding a large batch of challenges to the Prevention of Money-Laundering Act, 2002, the Supreme Court upheld every provision questioned before it, reading some of them in a particular way. Section 3 covers every process or activity connected with proceeds of crime; projecting the property as untainted is not essential. There can be no prosecution without a registered or pending scheduled offence, and none survives a final discharge, acquittal or quashing. The ECIR is an internal document and need not be supplied if the grounds of arrest are disclosed. ED officers are not police officers, and statements under Section 50 are not hit by Article 20(3). The twin bail conditions in Section 45, as amended in 2018, are valid and govern anticipatory bail too, but Section 436A CrPC remains available. The Money Bill question was left open.

Issues

Whether the offence of money-laundering under Section 3 requires the proceeds of crime to be projected or claimed as untainted property, and how the offence depends on the scheduled offence and on its date.
Whether the definition of proceeds of crime in Section 2(1)(u) and its 2019 Explanation, attachment under Section 5 (including the amended second proviso) and taking possession under Section 8(4) are valid.
Whether search, seizure and arrest under Sections 17, 18 and 19, after the provisos to Sections 17(1) and 18(1) were deleted in 2019, are arbitrary without the safeguards of the Code of Criminal Procedure.
Whether an ECIR is equivalent to an FIR and must be supplied to the accused, and whether Chapter XII of the Code of Criminal Procedure governs inquiry into money-laundering.
Whether the presumption and burden of proof under Section 24 are constitutional.
Whether Section 44, on trial of the money-laundering offence and connected scheduled offences by the Special Court, is valid.
Whether the twin conditions for bail in Section 45 revived after Nikesh Tarachand Shah and the 2018 amendment, whether they are valid, and whether they apply to anticipatory bail.
Whether ED officers are police officers, and whether summons and statements under Section 50 and penalties under Section 63 violate Articles 20(3) and 21.

Provisions considered

Sections 2(1)(na) and 2(1)(u), with the 2019 Explanation, Prevention of Money-Laundering Act, 2002"Proceedings" and "investigation" were given a contextual meaning that covers inquiry by the authorities. The Explanation to Section 2(1)(u) was held clarificatory, and "proceeds of crime" is to be construed strictly as property derived from criminal activity relating to a scheduled offence. (¶¶ 26, 27, 28, 30, 31, 32, 33)
Section 3, with the Explanation inserted in 2019, Prevention of Money-Laundering Act, 2002Read as reaching every process or activity connected with proceeds of crime. "And" before "projecting or claiming" means "or", and the Explanation only clarifies the original provision. (¶¶ 37, 38, 39, 40, 41, 42, 43)
Section 5, including the second proviso to Section 5(1), Prevention of Money-Laundering Act, 2002Upheld as a balancing arrangement with inbuilt safeguards. Provisional attachment does not require a scheduled offence to be registered beforehand. (¶¶ 56, 57, 59, 60, 65, 66, 67, 68, 70)
Sections 8(3) and 8(4), Prevention of Money-Laundering Act, 2002Taking possession before a formal order of confiscation is to be an exception, decided case by case. On that construction, the challenge to Section 8(4) failed. (¶¶ 72, 73, 74, 75, 76)
Sections 17 and 18, Prevention of Money-Laundering Act, 2002Deletion of the provisos requiring a prior report or complaint on the scheduled offence was upheld, given the safeguards built into these sections. Section 71 gives them precedence over the Code. (¶¶ 77, 78, 79, 80, 83, 84, 85, 86, 87)
Section 19, Prevention of Money-Laundering Act, 2002Arrest by high-ranking officers was upheld. It requires reasons to believe recorded in writing, the grounds of arrest to be given, material sent to the Adjudicating Authority, and production within 24 hours. (¶¶ 88, 89, 90)
Section 24, Prevention of Money-Laundering Act, 2002The presumption operates only after the prosecution establishes the foundational facts. It is rebuttable, mandatory for a person charged and discretionary for others. It was held valid. (¶¶ 91, 92, 93, 96, 97, 99, 101, 102, 103)
Section 44(1)(a) to (d) and the Explanation, Prevention of Money-Laundering Act, 2002Clause (a) and committal under clause (c) were read as directory and discretionary, to be applied case by case. The closure-report proviso and the Explanation were held enabling and clarificatory. (¶¶ 104, 107, 108, 109, 110, 111, 112, 113, 114)
Section 45, as amended by Act 13 of 2018, Prevention of Money-Laundering Act, 2002The 2018 amendment cured the defects found in Nikesh Tarachand Shah. The twin conditions were upheld and held applicable to every form of bail. (¶¶ 116, 118, 121, 125, 126, 127, 129, 131, 135, 137, 140, 141)
Section 436A, Code of Criminal Procedure, 1973Treated as a later, beneficial statutory bail provision, akin to Section 167, that accused under the 2002 Act may invoke. It remains subject to the Court's discretion. (¶¶ 142, 144, 145, 147, 149)
Sections 50 and 63, Prevention of Money-Laundering Act, 2002Summons and statements were treated as part of an inquiry into proceeds of crime, deemed judicial proceedings, and made by officers who are not police officers. The penalties in Section 63 were upheld. (¶¶ 150, 152, 153, 159, 163, 164A, 168, 172, 174)
Article 20(3), Constitution of IndiaThe protection applies only to a person formally accused who is compelled to be a witness against himself, so it is not engaged when summons are issued under Section 50. (¶¶ 153, 154, 155, 156, 157, 159, 172)

Held

Section 3 has a wider reach than integration of tainted money into the economy. Involvement in any one process or activity connected with proceeds of crime, whether concealment, possession, acquisition, use, projection or claim, is money-laundering. "And" before "projecting or claiming" must be read as "or", and the 2019 Explanation is clarificatory. The offence can continue, and the relevant date is when the person deals with the proceeds, not when the scheduled offence was committed. (¶¶ 37, 38, 40, 41, 42, 43, 187)
Proceeds of crime must be property derived or obtained as a result of criminal activity relating to a scheduled offence. Not all property connected with a crime qualifies, nor does unaccounted income by itself. The authorities cannot proceed on the assumption that a scheduled offence was committed unless it is registered with the police or pending by complaint. If the person is finally discharged or acquitted, or the case is quashed, there can be no money-laundering case against that person or anyone claiming through them. (¶¶ 31, 33, 52, 53, 54, 187)
Section 5 is valid. Under the amended second proviso, provisional attachment needs no pre-registered scheduled offence, unlike prosecution. The officer must record reasons to believe, based on material in his possession, that immediate attachment is needed, and should inform the police under Section 66(2) at the same time. Only property that appears to be proceeds of crime may be attached. Under Section 8(4), possession should ordinarily await a formal order of confiscation. (¶¶ 59, 60, 66, 67, 70, 73, 74, 76)
Deleting the provisos to Sections 17(1) and 18(1) is valid because of the safeguards in those provisions, and the proviso to Rule 3(2) of the 2005 Rules cannot be read into the amended Section 17. Section 19 is valid. An arrest may precede the complaint, provided the high-ranking officer records reasons to believe that the person is guilty, informs them of the grounds, forwards the material to the Adjudicating Authority and produces them within 24 hours. (¶¶ 79, 80, 84, 85, 86, 87, 88, 89, 90)
An ECIR cannot be equated with an FIR. It is an internal document, and the authorities may begin inquiry for provisional attachment without an FIR being recorded for the scheduled offence. Supplying the ECIR is not mandatory; disclosing the grounds at the time of arrest satisfies Article 22(1). The Special Court may examine the ED's records when deciding on continued detention. The ED should consider publishing on its website an outline of its powers and the remedies available. (¶¶ 176, 177, 178, 179, 181)
Section 24 applies in proceedings before the Adjudicating Authority and the Special Court. The prosecution must first establish three facts: the scheduled offence, property derived from it, and the person's involvement with that property. The presumption is then mandatory for a person charged (clause (a)) and discretionary for others (clause (b)), and it can be rebutted by evidence within the person's knowledge. The section has a reasonable nexus with the Act's objects. (¶¶ 92, 93, 97, 99, 100, 101, 102, 103)
Section 44 is not arbitrary. Clause (a) is directory, so a scheduled offence pending before a Special Court elsewhere may continue there, and the two trials proceed independently. Committal under clause (c) is discretionary and decided case by case. "Committed" in clause (b) may be read as "produced". The closure-report proviso and the Explanation are enabling and clarificatory, and the loss of a tier of appeal does not violate Article 21. (¶¶ 107, 108, 109, 110, 111, 112, 113, 114, 187)
Nikesh Tarachand Shah made the twin conditions unenforceable but did not remove them from the statute book. Parliament validly cured the defect by Act 13 of 2018. Section 45, as amended, is reasonable. The Court disagreed with Nikesh's attempt to distinguish Kartar Singh and with its doubts about how serious the offence is. The conditions are not an absolute bar: the Court decides on broad probabilities, without a positive finding of innocence. Their principles apply to anticipatory bail and in constitutional courts. (¶¶ 119, 121, 125, 129, 130, 131, 135, 139, 140, 141)
Section 436A CrPC is a later beneficial law enforcing the right to a speedy trial. It may be invoked by persons arrested under the 2002 Act as a statutory bail provision akin to Section 167. It is not mechanical: the Court may continue detention for recorded reasons, for example where the accused caused the delay. (¶¶ 142, 144, 145, 146, 147, 148, 149)
The authorities under Section 48 are not police officers, and Tofan Singh was distinguished because the NDPS Act is structured differently. Section 50 summons are part of an inquiry into proceeds of crime. Without a formal accusation the person cannot claim Article 20(3), and statements are not hit by Article 20(3) or Article 21. Where a statement is recorded after formal arrest, Article 20(3) or Section 25 of the Evidence Act may be urged, case by case. Section 63 is valid. The contents of the Schedule are legislative policy, and Section 4 need not grade punishment. (¶¶ 159, 163, 164A, 168, 171, 172, 174, 175, 175A, 183)

Result

The challenges were rejected on the interpretations in paragraph 187. The Money Bill question was left open for the seven-Judge Bench in Rojer Mathew, and petitions raising it were delinked. Transfer petitions and transferred cases went back to the High Courts. Petitions on validity alone were disposed of. Bail, discharge and quashing matters, and those on other statutes, were de-tagged for separate listing. Interim relief continues for four weeks.